According to the Court of Appeal’s decision in Silguero v. Creteguard, Inc., employers must not only be wary regarding the use of non-compete agreements with their own employees but also in taking action based on such agreements with a prior employer. In Silguero, the Court of Appeal held that when an employer terminates an employee based on a non-compete agreement with a prior employer, the employer may be subject to a claim for wrongful termination in violation of public subject to a claim for wrongful termination in violation of public policy.
The plaintiff in Silguero was a sales person employed by Creteguard, which was contacted by the plaintiff’s former employer. The former employer claimed that the plaintiff was subject to a non-compete agreement and requested Creteguard’s cooperation in enforcing the agreement. Despite not believing in the enforceability of the agreement, Creteguard nevertheless terminated the plaintiff because it wished to “keep the same respect and understanding with colleagues in the same industry.” Based on her termination, the plaintiff sued Creteguard, asserting various claims including wrongful termination in violation of public policy.
In reaching its decision, the Silguero court observed that the non-compete agreement in question was not enforceable under California law. The agreement violated California’s public policy supporting the individual’s right to pursue lawful employment of his or her choice, and it did not otherwise fall within any statutory exception to this rule, such as an agreement reached in conjunction with the sale of a business. The court also deemed that any alleged “understanding” between Creteguard and the previous employer was tantamount to a no-hire agreement, which would be void and unenforceable under California law because it unfairly limits the mobility of an employee. As a result, the court reasoned that upholding the termination would allow the previous employer to accomplish indirectly – the enforcement of an otherwise void non-compete agreement – that which it could not accomplish directly.
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